Government Regulations in a Business: Must follow Laws in the U.S.
When starting and operating a business, one must be aware of the laws that govern businesses. All businesses must be compliant to regulations that exist and pertain to their respective business type. Businesses achieve this in a myriad of ways: by hiring in house counsel or maintaining an internal legal department, utilizing external legal services, conducting research, and creating procedures for employees that ensure all necessary laws are followed while conducting company operations. Failure to take steps to achieve compliance to business laws can lead to fines and litigation, which impacts businesses financially and creates a lot of stress and extra work. Common categories of business regulations in the US are outlined below.
The US Tax Code
One of the lengthiest and most complicated areas of business regulations in the US is the US Tax Code. This affects every business in some way: businesses must report earnings and, if applicable, pay tax to the Internal Revenue Service. There are over 70,000 pages in the US Tax Code, and it goes through changes every year. For this reason, tax regulations can be challenging to understand fully. Many business rely on the help of a professional accountant to ensure compliance to laws, both in filing annual tax documents and in setting up internal processes and record keeping that are compliant. Businesses that choose not to utilize professional accounting services need to take steps to educate themselves about the tax regulations that pertain to them. Many do so by attending seminars and reading about the current tax code specifics.
The US Bankruptcy Code is a very important area for businesses. Should a business be in a position where it is losing money, it may need to take steps to file for bankruptcy. Bankruptcy is a process that allows businesses that are losing money to eliminate or repay their debt. There are three types of bankruptcy in the US: Chapter 7, Chapter 11, or Chapter 13. The type that is filed depends on the business's debt levels and overall financial situation. In Chapter 7 filings, the business’s non-exempt assets are sold, and the proceeds are used to pay creditors. In Chapter 11, the Bankruptcy Code provides for reorganization of the business. The business filing Chapter 11 normally proposes a plan of reorganization to keep its business alive, and settle with creditors over time. Chapter 13 bankruptcy is similar to Chapter 11, but it is used for individuals as opposed to businesses.
Antitrust laws are those regulations that enforce a competitive marketplace. These laws promote strong competition in order to protect consumers from monopolies, anti-competitive mergers and acquisitions and other business practices that hurt a healthy free trade economy. Antitrust laws are governed by the Federal Trade Commission's (FTC’s) Bureau of Competition, and Bureau of Economics. These agencies help to manage and enforce antitrust laws that protect the US economy and consumers.
The three main laws that fall into the antitrust space are the Sherman Act, the Federal Trade Commission Act, and the Clayton Act.
The Sherman Act: this legislation outlaws "every contract, combination, or conspiracy in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize." It has been determined by the Supreme Court that this law does not prohibit every restraint of trade, only those that are unreasonable. Violating the Sherman Act carries heavy consequences, including criminal penalties of up to $100 million for a corporation and $1 million for an individual, and up to 10 years in prison. Under Federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million.
The Federal Trade Commission Act: This act formed the FTC, and it prohibits "unfair methods of competition" and "unfair or deceptive acts or practices." The Supreme Court has determined that all violations of the Sherman Act also violate the FTC Act. The FTC Act governs other practices that harm competition as well, particularly those that may not fit neatly into categories of conduct formally prohibited by the Sherman Act.
The Clayton Act: this law prohibits one person making business decisions for competing companies and mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly." As of 1936, the Clayton Act also bans certain discriminatory prices, services, and allowances in dealings between merchants. Since 1976, this law requires companies planning large mergers or acquisitions to notify the government in advance. The Clayton Act also allows suing for triple damages when harm has been caused by conduct that violates either the Sherman or Clayton Act. It also allows for obtaining a court order prohibiting the anticompetitive practice in the future.
The US has laws that govern advertising, also managed by the FTC. Advertisement claims are required to be truthful, cannot be deceptive, misleading, or unfair, and statements made in advertising must be based on evidence. For certain product or service categories, additional rules may apply:
Children’s Products: Truth in advertising requirements are particularly stressed in this category.
Environmental Marketing: It is required that products and services that are marketed as eco-friendly or green are backed up by competent and reliable scientific evidence that back up the advertising claim.
Endorsements: If endorsements are used as part of a marketing campaign, they must comply with FTC Act and the FTC's Guides Concerning Use of Endorsements and Testimonials in Advertising.
Health Claims: For health food, over-the-counter drugs, dietary supplements, contact lenses, and other health-related goods and services, all advertising claims need to be backed by solid evidence.
Other: Other categories of ads that have additional regulations include “Made in USA” products, telemarketing, and online advertising.
Regulations exist in the US that protect privacy and consumer data. These include the United States Privacy Act, the Safe Harbor Act and the Health Insurance Portability and Accountability Act. It is important to know that this area of business law is growing and changing rapidly, mostly due to rapid advances in technology, and how it is changing how companies collect, store, manage, and use data.
In conclusion, it is important to stay abreast of US business laws, and to continuously develop knowledge in business law areas that apply to your work.